United States Government Accountability Office

GAO Report to Congressional Requesters

MEDICAID

Transfers of Assets by 

Elderly Individuals to 

Obtain Long-Term 

Care Coverage 

September 2005 

 

GAO-05-968 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2005

MEDICAID

Transfers of Assets by Elderly Individuals 

Highlights of GAO-05-968, a report to to Obtain Long-Term Care Coverage congressional requesters

In fiscal year 2004, the Medicaid

program financed about $93 billion 

for long-term care services. To

qualify for Medicaid, individuals’

assets (income and resources) 

must be below certain limits. 

Because long-term care services 

can be costly, those who pay 

privately may quickly deplete their

assets and become eligible for 

Medicaid. In some cases, 

individuals might transfer assets to

spouses or other family members 

to become financially eligible for 

Medicaid. Those who transfer

assets for less than fair market 

value may be subject to a penalty 

period that can delay their

eligibility for Medicaid. 

GAO was asked to provide data on 

transfers of assets. GAO reviewed

(1) the level of assets held and

transferred by the elderly, 

(2) methods used to transfer assets

that may result in penalties, 

(3) how states determined financial 

eligibility for Medicaid long-term 

care, and (4) guidance the Centers 

for Medicare & Medicaid Services 

(CMS) has provided states 

regarding the treatment of asset 

transfers. GAO analyzed data on

levels of assets and cash transfers 

made by the elderly from the 2002 

Health and Retirement Study

(HRS), a national panel survey; 

analyzed states’ Medicaid

applications; and interviewed 

officials from nine states about

their eligibility determination 

processes. 

In 2002, over 80 percent of the approximately 28 million elderly households

(those where at least one person was aged 65 or over) had annual incomes 

of $50,000 or less, and about one-half had nonhousing resources, which 

excluded the primary residence, of $50,000 or less. About 6 million elderly 

households (22 percent) reported transferring cash, with amounts that 

varied depending on the households’ income and resource levels. In general,

the higher the household’s asset level, the more likely it was to have 

transferred cash during the 2 years prior to the HRS study. Overall, disabled 

elderly households—who are at higher risk of needing long-term care—were 

less likely to transfer cash than nondisabled elderly households. 

Cash Transferred in the Previous 2 Years as Reported by Elderly Households with Varying 

Levels of Income and Nonhousing Resources, 2002 

Median elderly household

Dollar amount of cash 

transferred 

Income

Nonhousing

resources

Percentage of

all elderly 

households 

Percentage of

group that

transferred cash 

Median

(midpoint)

Mean

(average)

≤$24,200 ≤$51,500 36.7 10.4 $2,000 $4,000

≤$24,200 >$51,500 13.3 19.0 4,000 8,320

>$24,200 ≤$51,500 13.3 27.5 2,000 3,910

>$24,200 >$51,500 36.7 31.7 4,000 12,010

Source: GAO analysis of data from the 2002 Health and Retirement Study. 

Certain methods to reduce assets, such as spending money to pay off debt or 

make home modifications, do not result in penalty periods. Other methods, 

such as giving gifts, transferring property ownership, and using certain 

financial instruments, could result in penalty periods, depending on state 

policy and the specific arrangements made. None of the nine states GAO

contacted tracked or analyzed data on asset transfers or penalties applied. 

These states required applicants to provide documentation of assets but 

varied in the amount of documentation required and the extent to which

they verified the assets reported. These states generally relied on applicants’ 

self-reporting of transfers of assets, and officials from these states informed 

GAO that transfers not reported were difficult to identify. 

To help states comply with requirements related to asset transfers, CMS has 

issued guidance primarily through the State Medicaid Manual. CMS released 

a special study in 2005 to help states address the issue of using annuities as a 

means of sheltering assets. Additionally, CMS officials provide ongoing 

technical assistance in response to state questions, but noted the challenge

of issuing guidance applicable to all situations given the constantly changing

methods used to transfer assets in an attempt to avoid a penalty period. 

In commenting on a draft of this report, CMS noted the complexity of the 

current law and commented that data on the precise extent and cost of asset 

transfers to the Medicaid program have been difficult to gather. 

www.gao.gov/cgi-bin/getrpt?GAO-05-968.

To view the full product, including the scope 

and methodology, click on the link above.

For more information, contact Kathryn G. 

Allen at (202) 512-7118 or allenk@gao.gov.
Contents 

Letter 1

Results in Brief 4

Background 6

Asset Levels and Extent of Cash Transfers Varied Depending on 

Demographic Factors 13 

Methods of Reducing Assets May Not Result in a Penalty Period 20 

States Could Not Identify the Extent to Which Individuals

Transferred Assets 26 

CMS Provides Guidance on Transfers of Assets through the State 

Medicaid Manual and in Response to Specific Questions from

States 31

Agency and State Comments 34 

Appendix I Information about the Health and Retirement Study 36 

Appendix II Methodology for Selecting Sample States 37 

Appendix III Characteristics of Medicaid Long-Term Care 

Application Processes, by State 39 

Appendix IV Characteristics of Medicaid Long-Term Care 

Applications Related to Transfers of Assets, by State 42 

Appendix V Comments from the Centers for Medicare & Medicaid 

Services 44 

Appendix VI GAO Contact and Staff Acknowledgments 46 

Page i GAO-05-968 Medicaid and Asset Transfers
Tables 

Table 1: Types of Assets and Examples 9 

Table 2: Income and Resource Standards for Certain Medicaid

Eligibility Categories, as of 2005 10 

Table 3: Cash Transferred in the Previous 2 Years as Reported by 

Elderly Households, by ADL Limitation, Marital Status, and

Gender, 2002 19 

Table 4: Cash Transferred in the Previous 2 Years as Reported by 

Elderly Households with Varying Levels of Income and 

Nonhousing Resources, 2002 20 

Table 5: Information Required during States’ Application Processes 

for Medicaid Eligibility 28 

Table 6: Nine States’ Requirements for Documentation of Assets 29 

Table 7: Proportion of Applicants for Which Nine Sample States 

Used Specific Asset Verification Sources 30 

Table 8: Clusters Used for State Sample Selection 38 

Figures 

Figure 1: Distribution of Annual Income as Reported by Elderly 

Households, 2002 14 

Figure 2: Distribution of Nonhousing Resources as Reported by 

Elderly Households, 2002 15 

Figure 3: Median Assets—Income and Resources—for Elderly 

Households, by Level of Disability, 2002 16 

Figure 4: Median Assets—Income and Resources—for Elderly 

Households, by Marital Status and Gender, 2002 17 

Figure 5: Median Income and Nonhousing Resources for Elderly 

Households That Reported Transferring Cash Compared 

with All Elderly Households, 2002 18 

Page ii GAO-05-968 Medicaid and Asset Transfers
Abbreviations 

ADL activities of daily living

CMS Centers for Medicare & Medicaid Services 

HRS Health and Retirement Study 

IADL instrumental activities of daily living 

IEVS Income and Eligibility Verification System

SSI Supplemental Security Income

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Page iii GAO-05-968 Medicaid and Asset Transfers
United States Government Accountability Office

Washington, DC 20548 

September 2, 2005 

The Honorable John D. Dingell

Ranking Minority Member

Committee on Energy and Commerce 

House of Representatives 

The Honorable Sherrod Brown 

Ranking Minority Member

Subcommittee on Health

Committee on Energy and Commerce 

House of Representatives 

The Honorable Henry A. Waxman

House of Representatives 

As people age, their ability to carry out certain basic physical functions 

declines, increasing the likelihood that they will need long-term care. In

2003, nearly half of the nation’s total expenditures of about $183 billion for 

long-term care, including nursing home payments, were paid for by the 

Medicaid program, the joint federal-state health care financing program 

that covers certain categories of low-income individuals.

1

 Medicaid

expenditures for long-term care in 2004 were about $93 billion out of total 

Medicaid expenditures of $295 billion. With the aging of the population

and the likely increase in demand for long-term care, federal Medicaid

spending is expected to more than double in size over the next 10 years.2

To qualify for Medicaid coverage for long-term care services, individuals 

must meet certain financial and functional eligibility criteria.

3

 To meet the 

 

l

1

In addition to nursing home services, other health care services for long-term care include 

home health, personal care services, assisted living, and noninstitutional group living

arrangements. 

2

Congressional Budget Office, The Budget and Economic Outlook: Fisca Years 2006 to

2015 (Washington, D.C.: January 2005).

3

The functional eligibility criteria are established by each state and generally involve a

degree of impairment measured by the level of assistance an individual needs to perform

activities of daily living (ADL) such as eating, bathing, dressing, using the toilet, getting in

and out of bed, and getting around the house, as well as instrumental activities of daily 

living (IADL) such as preparing meals, shopping for groceries, and getting around outside. 

Page 1 GAO-05-968 Medicaid and Asset Transfers
financial eligibility criteria, individuals must have assets that fall below

established standards, which vary by state but are within standards set by

the federal government. Assets include income, which is anything received 

during a calendar month that is used or could be used to meet food, 

clothing, or shelter needs; and resources, which are anything owned, such

as savings accounts, stocks, or property, that can be converted to cash.4

Not all assets are counted in determining financial eligibility for 

Medicaid—for example, states generally exclude the value of an 

individual’s primary residence. Because certain types of long-term care—

particularly nursing home care—are costly (estimated by some to average 

over $70,000 a year for a private-pay patient),5

 individuals who pay for an 

extended stay in a nursing home can quickly deplete their assets and 

subsequently qualify for Medicaid. In some cases, individuals might divest

themselves of their assets—for example, by transferring them to their 

spouses or other family members—in order to establish financial eligibility 

for Medicaid long-term care coverage. However, those who transfer assets

for less than fair market value during a specified “look-back” period—the 

period of time before application for Medicaid in which asset transfers are

reviewed—may incur a penalty—a period during which they are ineligible 

for Medicaid coverage for long-term care services. The look-back period is

either 36 months or 60 months, depending on the type of asset. The 

penalty period begins at approximately the time assets were transferred. 

Opinions differ over the extent to which individuals transfer assets to 

qualify for Medicaid coverage for long-term care. Some contend that asset 

transfers are prevalent and that individuals, on the advice of elder law

attorneys, transfer assets that are sometimes significant in order to qualify 

for Medicaid long-term care coverage, thus substantially increasing 

Medicaid costs. Others contend that, while such transfers may occur, they 

are not a large-scale problem that unduly increases Medicaid program

costs and that individuals expecting to need nursing home care tend to

save more assets than others in order to pay for their care. Evidence on 

the extent to which individuals transfer assets to become eligible for 

Medicaid long-term care is generally limited and often based on anecdotes. 

 

t

4

This terminology is based on definitions provided in the State Medicaid Manual issued by

CMS, which specifies that assets include both income and resources. 

5

Congressional Budget Office, The Cos and Financing of Long-Term Care Services, April 

19, 2005, Statement before the Subcommittee on Health, Committee on Ways and Means,

U.S. House of Representatives; and Metropolitan Life Insurance Company, The MetLife

Market Survey of Nursing Home & Home Care Costs (Westport, Conn.: September 2004). 

Page 2 GAO-05-968 Medicaid and Asset Transfers
The President’s fiscal year 2006 budget proposed to save an estimated 

$1.5 billion over 5 years by tightening existing rules related to asset 

transfers. According to the Centers for Medicare & Medicaid Services 

(CMS), the agency within the Department of Health and Human Services 

that oversees states’ Medicaid programs, the proposal changes the start of 

the penalty period from the date of the asset transfer to the later of (1) the 

date of the asset transfer, or (2) the point at which an individual is eligible

for Medicaid and is receiving long-term care services. In light of the 

current budget proposal, you asked us to provide data on transfers of

assets by elderly individuals in order to obtain Medicaid-covered long-term 

care. 

For this report, we reviewed (1) the level of assets held by the elderly, 

including those who transferred cash and the amounts they transferred; 

(2) methods that the elderly use to reduce available assets that may result 

in a penalty period; (3) states’ experiences in identifying the extent of

asset transfers to establish Medicaid eligibility for long-term care 

coverage; and (4) guidance and technical assistance that CMS provided to 

states regarding individuals’ transfers of assets in order to qualify for 

Medicaid long-term care coverage. 

To examine these issues, we analyzed data from the 2002 Health and

Retirement Study (HRS), a longitudinal national panel survey, sponsored 

by the National Institute on Aging and conducted every 2 years by the

University of Michigan. (See app. I for more information about the HRS.) 

We used data from this survey to estimate the (1) level of assets (both 

income and resources) held by elderly households (defined as those in

which at least one member is aged 65 or over), (2) extent to which they 

transferred cash, and (3) amount transferred.6 Our analysis includes data 

from all elderly households; we did not assess whether the respondents 

had or were seeking Medicaid coverage. Because the HRS only addressed 

cash transfers—cash provided to relatives or other individuals—our 

analysis understates the extent and amount of all transfers by excluding

transfers of property and other types of assets. Since the HRS did not

inquire about the reason for the cash transfers, no conclusions can be 

drawn regarding the extent to which the survey respondents transferred 

cash for purposes of establishing Medicaid eligibility for long-term care. In

 6

HRS asked respondents whether they had transferred cash to another individual during 

the 2 years prior to the interview. The data we report here, therefore, refer only to these 

transfers. 

Page 3 GAO-05-968 Medicaid and Asset Transfers
addition to analyzing the survey data, we collected and analyzed Medicaid 

applications in use during June and July 2005 for long-term care, from all 

50 states and the District of Columbia.7

 We reviewed the federal laws

related to Medicaid and asset transfers, as well as related CMS guidance. 

We also interviewed officials from 9 states regarding Medicaid eligibility 

determination practices, including the process for identifying whether 

applicants had transferred assets. To select states, we assessed the

prevalence of five factors in each state;8

 on the basis of this assessment, 

we grouped the states into three clusters (low, medium, and high) based 

on the prevalence of the five factors. We then selected 3 states from each 

cluster based on randomly generated numbers, for a total sample of 9. The 

9 states in the sample were Arkansas, District of Columbia, Florida,

Hawaii, Montana, Ohio, Oregon, South Carolina, and Wisconsin. (See app.

II for more information about our methodology for selecting the sample

states.) We also interviewed several elder law attorneys, researchers, and 

officials from CMS and its 10 regional offices. We conducted our work 

from April through August 2005 in accordance with generally accepted 

government auditing standards. 

Overall, in 2002, elderly households’ asset levels varied depending on

demographic factors such as the level of disability, marital status, and 

gender; additionally, transfers of cash also depended on these 

demographics as well as the overall level of a household’s assets. Of the 

approximately 28 million elderly households, about 80 percent of

households had annual incomes of $50,000 or less, and about one-half of

elderly households had nonhousing resources, which exclude the primary 

residence, of $50,000 or less, according to data from the 2002 HRS.9

 The 

median annual income for all elderly households was $24,200, and their 

median nonhousing resources were $51,500. Households with a disabled 

elderly individual (reporting at least one limitation in activities of daily

Results in Brief

 7

Throughout this report, the term state refers to the 50 states and the District of Columbia. 

8

The five factors were (1) percentage of the population aged 65 and over, (2) cost of a 

nursing home for a private-pay patient, (3) proportion of elderly with income at or above 

250 percent of the federal poverty level ($23,925 for a single-person household in 2005), (4)

reported Medicaid nursing home expenditures, and (5) availability of legal services through 

elder law attorneys specifically to meet the needs of individuals who are elderly or

disabled. 

9

We excluded the primary residence from this analysis because states’ Medicaid programs

generally do not include a residence as a countable resource. The median total resources

for all elderly households, including the primary residence, were $150,000. 

Page 4 GAO-05-968 Medicaid and Asset Transfers
living (ADL)) tended to have lower asset levels than nondisabled elderly 

households, and as the level of disability increased, the level of household 

assets decreased. Elderly individuals reporting three or more limitations in

ADLs—who are at higher risk of needing long-term care—had a median 

income of $13,200 and median nonhousing resources of $3,200. With 

regard to transfers of cash during the 2 years prior to the HRS study, 

approximately 6 million elderly households (about 22 percent) reported 

transferring cash, with a median transfer amount of $3,000. In general,

households with higher asset levels were more likely to have transferred 

cash; hence, nondisabled elderly households and couples were most likely 

to have transferred cash.

Methods individuals use to reduce their assets for purposes of establishing 

Medicaid eligibility do not always result in a penalty period and thus may 

not lead to a delay in Medicaid coverage for long-term care services. For 

example, reducing debt or making home modifications does not result in a 

penalty period. Other methods, however, could result in a penalty period 

and thus a delay in Medicaid coverage for long-term care services. 

Methods used that may result in a penalty period include giving away 

assets as gifts, making use of certain financial instruments such as 

annuities and trusts, and transferring property ownership. Whether or not

an asset reduction method results in a penalty period depends on the 

specific arrangements made and the policies of the individual state. For 

example, giving away assets generally results in a penalty period, but

exceptions exist, including assets given to a spouse or disabled child 

without penalty. 

Although most of the officials in the nine states we reviewed reported that

some individuals transferred assets for purposes of qualifying for Medicaid 

coverage for long-term care, none of these systematically tracked or

analyzed data that would provide information on the incidence of asset 

transfers and the extent to which penalties were applied in their states. 

Nationwide, all states requested information about applicants’ assets, 

including transfers of assets, through Medicaid application forms, 

interviews to determine Medicaid eligibility, or both. The nine states we 

reviewed generally relied on this applicant-reported information to

identify transfers of assets. These states required applicants to provide 

documentation of their assets as part of the application process but varied 

in the amount of documentation they required. For example, all nine states 

required bank statements but differed in the length of time the statements

were to cover. Although these states also differed in the extent to which 

they verified reported assets, they were more likely to verify information 

on income and less likely to verify information on resources. According to

Page 5 GAO-05-968 Medicaid and Asset Transfers
officials in these nine states, transfers that were not reported by applicants

were difficult to identify. Some of these states, however, reported using 

certain indicators from applicants’ asset documentation, the states’ asset 

verification data, case worker interviews, or a combination of these 

factors to try to identify unreported transfers. 

To help states comply with federal requirements related to asset transfers 

and Medicaid eligibility for long-term care coverage, CMS issued guidance 

primarily through the State Medicaid Manual. The agency also released a 

special study in 2005 to help states address the issue of using annuities as

a means of sheltering assets. Although CMS officials provide ongoing 

technical assistance to individual states in response to their questions, 

some said that the agency faces challenges in issuing guidance that would 

be applicable to all situations. In particular, CMS officials said that states’

efforts to identify and address asset transfer issues are constantly

changing, as certain methods to convert countable assets are identified, 

increase in use, and then diminish. For example, CMS officials cited the 

use of personal care agreements, in which the individual applying for 

Medicaid long-term care coverage hires a family member to perform 

services, as a practice that at one time was frequently used to transfer

assets, and then diminished in use. The officials added that they provided 

technical assistance to states to help them limit the use of certain personal 

care agreements. 

We provided CMS and the nine states in our sample an opportunity to

comment on a draft of this report. In written comments, CMS noted that 

the complexity of current law provides opportunities for attorneys and 

individuals to devise asset transfer schemes that have the effect of

shielding substantial financial assets for certain individuals who 

consequently qualify for Medicaid coverage for long-term care. CMS also 

commented that data on the precise extent and cost of asset transfers to 

the Medicaid program have been difficult to gather. 

To be eligible for Medicaid, individuals must be within certain eligibility

categories, such as children or those who are aged or disabled. In addition, 

individuals must meet financial eligibility criteria, which are based on

individuals’ assets—income and resources together. Once eligible for

Medicaid, individuals can receive basic health and long-term care services, 

Background 

Page 6 GAO-05-968 Medicaid and Asset Transfers
as outlined by each state and subject to minimum federal requirements.10

Long-term care includes many types of services needed when a person has

a physical disability, a mental disability, or both. Individuals needing longterm care have varying degrees of difficulty in performing some ADLs and 

instrumental activities of daily living (IADL). 

Medicaid Coverage for

Long-Term Care 

Medicaid coverage for long-term care services is most often provided to 

individuals who are aged or disabled.11 Within broad federal standards, 

states determine the need for long-term care services by assessing 

limitations in an applicant’s ability to carry out ADLs and IADLs. Most

individuals requiring Medicaid long-term care services have become

eligible for Medicaid in one of three ways: (1) through participation in the 

Supplemental Security Income (SSI) program, (2) by incurring medical

costs that reduce their income and qualify them for Medicaid, or (3) by 

having long-term care needs that require nursing home or other

institutional care. 

• The SSI program provides cash assistance to aged, blind, or disabled 

individuals with limited income and resources. Those who are enrolled in

SSI generally are eligible for Medicaid.12

• Individuals who incur high medical costs may “spend down” into Medicaid

eligibility because these expenses are deducted from their countable

income. Spending down may bring their income below the statedetermined income eligibility limit. Such individuals are referred to as

“medically needy.” As of 2000, 36 states had a medically needy option, 

 10States are required to provide certain mandatory services and may, at their option, offer

additional services. Mandatory services include inpatient and outpatient hospital care; 

physician services; nursing home care; laboratory and x-ray services; immunizations and 

other early and periodic screening, diagnostic, and treatment services for children; family

planning services; health center and rural health clinic services; and nurse midwife and 

nurse practitioner services. Services that are optional include outpatient prescription

drugs, institutional care for persons with mental retardation, personal care, and dental and 

vision care for adults. 

11A chronic physical or mental disability may occur at any age, but as a person ages the

likelihood increases that a disability will develop or worsen. 

12Not all SSI recipients automatically qualify for Medicaid. Under Section 1902(f) of the 

Social Security Act, states may use Medicaid eligibility standards that they had in place in

1972 rather than rules that would otherwise apply under the SSI program. As of June 2003, 

11 states had opted to use these standards. These states are often referred to as 209(b)

states because the origin of this provision was §209(b) of the Social Security Amendments

of 1972, Pub. L. No. 92-603, 86 Stat. 1329, 1381. 

Page 7 GAO-05-968 Medicaid and Asset Transfers
although not all of these states extended this option to the aged and 

disabled or to those needing nursing home care. 

• Individuals can qualify for Medicaid if they reside in nursing facilities or 

other institutions in states that have elected to establish a special income 

level under which individuals with incomes up to 300 percent of the SSI

benefit ($1,737 per month in 2005) are Medicaid-eligible. Individuals 

eligible under this option must apply all of their income, except for a small

personal needs allowance, toward the cost of nursing home care.13 The 

National Association of State Medicaid Directors reported that, as of 2003,

at least 38 states had elected this option.14

SSI policy serves as the basis for Medicaid policy on the characterization 

of assets—income and resources. Income is something, paid either in cash 

or in-kind, received during a calendar month that is used or could be used 

to meet food, clothing, or shelter needs; resources are cash or things that

are owned that can be converted to cash. (Table 1 provides examples of 

different types of assets.) States can decide, within federal standards, 

which assets are countable or not. For example, states may disregard 

certain types or amounts of income and may elect not to count certain 

resources.15

 13A personal needs allowance is an amount, subject to a federal minimum ($30), excluded

from an institutionalized individual’s countable income to pay for the individual’s clothing

and other personal needs.

14See National Association of State Medicaid Directors, Aged, Blind and Disabled Eligibility

Survey (Washington, D.C.: American Public Human Services Association, 2002). 

Downloaded from http://www.nasmd.org/eligibility/default.asp on July 31, 2005. 

15Although noncountable resources vary by state, for purposes of determining Medicaid 

eligibility for long-term care, they generally include an individual’s primary residence

(typically if the individual expresses the intent to return home), an automobile, household 

goods and personal effects, burial spaces, and life insurance and burial arrangements up to 

a certain value, among other things. 

Page 8 GAO-05-968 Medicaid and Asset Transfers
Table 1: Types of Assets and Examples 

Type of asset Examples 

Income • Money earned from work

• Money generated from resources, such as interest, dividends, and 

annuity paymentsa

• Money received from other sources, such as Social Security,

worker’s compensation, and unemployment benefits 

Resources • Cash

• Bank accounts 

• Stocks

• Bonds 

• Trusts

b

• Annuities 

• Real estate

• Vehicles (such as automobiles and boats) 

• Life insurance 

Source: GAO analysis of SSI requirements. 

a

Some resources produce income. For example, an annuity is a financial instrument that provides a

fixed income over a defined period of time in return for an initial payment of principal. The principal of

an annuity is considered a resource, while the payments it generates are considered income.

b

A trust is any arrangement in which a grantor transfers property to a trustee with the intention that it

be held, managed, or administered by the trustee for the benefit of the grantor or certain designated 

individuals.

In most states, to be financially eligible for Medicaid long-term care 

services, an individual must have $2,000 or less in countable resources 

($3,000 for a couple). However, specific income and resource standards 

vary by eligibility category (see table 2). 

Page 9 GAO-05-968 Medicaid and Asset Transfers
Table 2: Income and Resource Standards for Certain Medicaid Eligibility 

Categories, as of 2005 

Medicaid eligibility category Income standard Resource standard

Mandatory coverage 

SSIaLess than $579 per 

month for an individual

and less than $869 per 

month for a couple 

Countable resources of less

than $2,000 for an 

individual, and less than

$3,000 for a couple 

State-elected coverage (optional) 

Medically needy State-set income

standard; individuals 

may “spend down” to

eligibility by deducting

incurred medical 

expenses from income 

State-set resource standard 

no more restrictive than the 

SSI resource standard 

Special income level for 

residents of a nursing facility or

institution 

State-set income

standard no higher than 

300 percent of the SSI 

standard ($1,737 per 

month) 

Same as SSI 

Source: GAO analysis of Medicaid eligibility requirements and Schneider, et al., The Medicaid Resource Book (Washington, D.C.: The 

Kaiser Commission on Medicaid and the Uninsured, July 2002), p. 30. 

a

Not all SSI recipients automatically qualify for Medicaid. Under Section 1902(f) of the Social Security

Act, states may use Medicaid eligibility standards that they had in place in 1972 rather than federal 

SSI rules. As of June 2003, 11 states had opted to use these standards. These states are often 

referred to as 209(b) states because the origin of this provision was §209(b) of the Social Security

Amendments of 1972, Pub. L. No. 92-603, 86 Stat. 1329, 1381.

The Medicaid statute requires states to use specific income and resource 

standards in determining eligibility when one spouse is in an institution, 

such as a nursing home, and the other remains in the community (referred 

to as the “community spouse”). This enables the institutionalized spouse

to become Medicaid-eligible while leaving the community spouse with 

sufficient assets to avoid hardship. 

Spousal Impoverishment 

Protections 

• Resources. The community spouse may retain an amount equal to onehalf of the couple’s combined countable resources, up to a state-specified 

maximum resource level.16 If one-half of the couple’s combined countable 

resources is less than a state-specified minimum resource level, then the 

 16States’ maximum resource levels must be within federal standards. As of January 1, 2005,

the federal maximum was $95,100. 

Page 10 GAO-05-968 Medicaid and Asset Transfers
community spouse may retain resources up to the minimum level.

17 The 

amount that the community spouse is allowed to retain is generally 

referred to as the community spouse resource allowance.18

• Income. The community spouse is allowed to retain all of his or her own 

income. States establish a minimum amount of income—the minimum 

monthly maintenance needs allowance (for this report we will refer to it as 

the minimum needs allowance)—that a community spouse is entitled to

retain. The amount must be within a federal minimum and maximum

standard.

19 If the community spouse’s income is less than the minimum

needs allowance, then the shortfall can be made up in one of two ways: by

transferring income from the institutionalized spouse (called the “incomefirst” approach) or by allowing the community spouse to keep resources

above the community spouse resource allowance, so that the additional 

funds can be invested to generate more income (the “resource-first” 

approach).20

Federal law limits Medicaid payments for long-term care services for 

persons who dispose of assets for less than fair market value within a 

specified time period to satisfy financial eligibility requirements. As a 

result, when an individual applies for Medicaid coverage for long-term 

care, states conduct a review, or “look-back,” to determine whether the 

applicant (or his or her spouse, if married) transferred assets to another 

person or party and, if so, whether the transfer was for less than fair

Transfers of Assets under 

Medicaid 

 

l t t il

17States’ minimum resource levels must be within federal standards. As of January 1, 2005,

the federal minimum was $19,020.

18Technically, the community spouse resource allowance is the amount of additional 

resources that the community spouse keeps above the spousal share of resources.

Generally, however, the community spouse resource allowance is used to refer to the total

resources that the community spouse is permitted to retain. See 42 U.S.C. § 1396r-5(f)(2);

see a so Wisconsin Depar men of Health and Fam y Services v. Blumer, 534 U.S. 473, 482-

3 (2001). According to CMS, the community spouse resource allowance means “the amount

of a couple’s combined jointly and separately-owned resources . . . allocated to the

community spouse and considered unavailable to the institutionalized spouse when 

determining his or her eligibility for Medicaid.” 66 Fed. Reg. 46763, 46768 (2001). 

19As of July 1, 2005, federal standards specified that the minimum needs allowance can be

no lower than $1,603.75 and no higher than $2,377.50 per month. 

20If the shortfall in income cannot be made up completely using one of the approaches, 

then a combination of both approaches may be used. 

Page 11 GAO-05-968 Medicaid and Asset Transfers
market value.21 Generally, the look-back period is 36 months.

22 If an asset 

transfer for less than fair market value is detected, the individual is 

ineligible for Medicaid long-term care coverage for a period of time, called 

the penalty period. The penalty period is calculated by dividing the dollar 

amount of the assets transferred by the average monthly private-pay rate 

for nursing home care in the state (or the community, at the option of the 

state). For example, if an individual transferred $100,000 in assets, and 

private facility costs averaged $5,000 per month in the state, the penalty 

period would be 20 months. The penalty period begins at approximately 

the date of the asset transfer.23 As a result, some individuals’ penalty 

periods have already expired by the time they apply for Medicaid longterm care coverage, and therefore they are eligible when they apply. 

Federal law exempts certain transfers from the penalty provisions. 

Exemptions include transfers of assets to the individual’s spouse, another 

individual for the spouse’s sole benefit, or a disabled child. Additional

exemptions from the penalty provisions include the transfer of a home to

an individual’s spouse, or minor or disabled child; a sibling residing in the 

home who meets certain conditions; or an adult child residing in the home 

who has been caring for the individual for a specified time period.24

Transfers do not result in a penalty if the individual can show that the 

transfer was made exclusively for purposes other than qualifying for 

Medicaid. Additionally, a penalty would not be applied if the state 

determined that it would result in an undue hardship, that is, it would 

deprive the individual of (1) medical care such that the individual’s health

 21Federal law requires states to apply the transfer of asset provisions to institutionalized

individuals, who are defined in the State Medicaid Manual as individuals who are inpatients

in a nursing facility or a similar institution or recipients of home and community-based

services. States have the option to apply such provisions to noninstitutionalized

individuals. 

22For individuals in institutions, the look-back period is 36 months from the date the 

individual is institutionalized and applies for Medicaid. For those who are not 

institutionalized, the look-back period is 36 months before the later of (1) the date the 

individual applies for Medicaid or (2) the date the person disposed of his or her assets for

less than fair market value. For certain types of trusts, the look-back period is 60 months. 

23States have the option to begin the penalty period on either the first day of the month in

which the asset was transferred for less than fair market value or the first day of the month 

following the month of transfer. 

24For the transfer of a home to a sibling to be exempt from transfer penalty provisions, the

sibling must have an equity interest in the home and must have resided in the individual’s

home for at least 1 year immediately prior to the date the individual became

institutionalized. 

Page 12 GAO-05-968 Medicaid and Asset Transfers
or life would be endangered or (2) food, clothing, shelter, or other 

necessities of life. 

Elderly households’ asset levels varied on the basis of level of disability,

marital status, and gender; additionally, the extent to which elderly 

households transferred cash varied with the level of household assets and 

these same demographic factors.25 In general, disabled elderly households

had lower asset levels than nondisabled elderly households, and the asset

levels decreased as the level of disability increased.

26 Elderly couples made 

up 46 percent of elderly households and had higher levels of assets than 

single elderly; single elderly females, who made up 41 percent of elderly

households, generally had lower assets than single elderly males, who 

made up 13 percent of elderly households.

27 For all elderly households, the 

higher their asset levels, the more likely they were to have reported 

transferring cash to another individual. Elderly households with both

incomes and nonhousing resources above the elderly household median 

were responsible for over one-half of all transfers made. Overall, severely

disabled elderly households—those reporting three or more limitations in

ADLs—were less likely to transfer cash than nondisabled elderly 

households.

28 Single individuals were less likely to transfer cash than 

couples, and single males had a higher likelihood of transferring cash than 

single females. 

According to data from the 2002 HRS, total income for the nation’s 

approximately 28 million elderly households was $1.1 trillion and total

nonhousing resources were $6.6 trillion. Approximately 80 percent of

elderly households had annual incomes of $50,000 or less. (See fig. 1.) The 

median annual income for all elderly households was $24,200 and ranged 

from $0 to $1,461,800. 

Asset Levels and 

Extent of Cash

Transfers Varied 

Depending on 

Demographic Factors 

Greatest Proportion of 

Elderly Had Incomes of 

$50,000 or Less and 

Nonhousing Resources 

below $100,000 

 25We analyzed HRS data at the “household” level. Household refers to either a single

individual living alone or more than one individual living together. Elderly households are 

those in which at least one member is aged 65 or over. 

26For the purpose of our analysis, we defined disabled elderly households as those in which 

the HRS respondent was both elderly and had at least one limitation in ADLs. 

27For the purpose of our analysis, we defined couples as both married couples and a small

percentage of nonmarried individuals living together.

28For the purpose of our analysis, we defined severely disabled elderly households as those

in which the survey respondent was both elderly and had at least three limitations in ADLs. 

Page 13 GAO-05-968 Medicaid and Asset Transfers
Figure 1: Distribution of Annual Income as Reported by Elderly Households, 2002 

About half of all elderly households had nonhousing resources of $50,000 

or less, while almost 20 percent had nonhousing resources greater than 

$300,000. (See fig. 2.) For all elderly households, median nonhousing 

resources were $51,500 and ranged from less than zero to $41,170,000.29 In

terms of total resources, elderly households had median total resources of

$150,000, ranging from less than zero to $41,640,000, and a primary 

residence with a median net value of $70,000, ranging from less than zero 

to $20,000,000. 

 29A household can have resources valued at less than zero if its debt is greater than the 

value of its resources. 

Page 14 GAO-05-968 Medicaid and Asset Transfers
Figure 2: Distribution of Nonhousing Resources as Reported by Elderly 

Households, 2002 

Disabled elderly households—which are at higher risk of needing longterm care—had lower levels of assets than nondisabled elderly 

households. Generally, as the level of disability increased, the level of

assets decreased.30 Severely disabled elderly households, which made up 

about 6 percent of total elderly households, had significantly lower median 

income ($13,200) and median nonhousing resources ($3,200) compared 

with all elderly households ($24,200 and $51,500, respectively). (See fig. 3.)

Elderly Households’ Level

of Assets Varied 

Depending on Level of 

Disability, Marital Status, 

and Gender 

 30A similar relationship existed between limitations in IADLs and household assets. As the

number of limitations in IADLs increased, the household’s income and resources

decreased. 

Page 15 GAO-05-968 Medicaid and Asset Transfers
Figure 3: Median Assets—Income and Resources—for Elderly Households, by

Level of Disability, 2002 

Elderly couples, which made up approximately 46 percent of elderly 

households, had higher levels of assets than single elderly individuals. Of

the single elderly, males, who made up approximately 13 percent of elderly 

households, were generally likely to be better off financially than females, 

who made up approximately 41 percent of elderly households. (See fig. 4.) 

Source: GAO analysis of data from the 2002 Health and Retirement Study.

Legend

All elderly households

No ADL limitations (79.6% of all elderly households)

One ADL limitation (10.2% of all elderly households)

Two ADL limitations (4.4% of all elderly households)

Three or more ADL limitations (5.8% of all elderly households)

3

2

1

0

$0 $10 $40 $20 $30 $50

Median income, in thousands

$0 $25 $100 $50 $75 $125

Median nonhousing resources, in thousands

$0 $25 $100 $50 $75 $125

Median housing resources, in thousands

3 2 1 0

3 2 1 0

3 2 1 0

Page 16 GAO-05-968 Medicaid and Asset Transfers
Figure 4: Median Assets—Income and Resources—for Elderly Households, by

Marital Status and Gender, 2002 

The likelihood that elderly households transferred cash and the amounts

they transferred varied with the level of assets held and demographic 

characteristics, such as the level of disability, marital status, and gender. 

Approximately 6 million, or about 22 percent, of all elderly households 

reported transferring cash during the 2 years prior to the HRS survey.

Almost all of these cash transfers were made to children or stepchildren. 

Of the elderly households that transferred cash, the median income was 

$37,000 and ranged from $0 to $725,600; median nonhousing resources 

were $128,000 and ranged from less than zero to $12,535,000. Generally, 

Source: GAO analysis of data from the 2002 Health and Retirement Study.

Legend

All elderly households

Couples (46.2% of all elderly households)

Single males (12.7% of all elderly households)

Single females (41.1% of all elderly households)

$0 $10 $40 $20 $30 $50

Median income, in thousands

$0 $25 $100 $50 $75 $125

Median nonhousing resources, in thousands

$0 $25 $100 $50 $75 $125

Median housing resources, in thousands

Likelihood of Cash 

Transfers and Amount 

Transferred Varied by 

Level of Assets 

Page 17 GAO-05-968 Medicaid and Asset Transfers
elderly households with higher asset levels were more likely to have 

transferred cash than households with lower asset levels (see fig. 5). 

Figure 5: Median Income and Nonhousing Resources for Elderly Households That 

Reported Transferring Cash Compared with All Elderly Households, 2002 

Of the 22 percent of elderly households that reported having transferred 

cash in the 2 years prior to the survey, nondisabled elderly households and

couples were most likely to do so. Among disabled elderly households, 

severely disabled households were the least likely to transfer cash.31 With 

regard to the amounts transferred, among single elderly individuals, males 

were more likely to transfer larger amounts of cash than females, with

 31Furthermore, as limitations in IADLs increased, the likelihood that a household 

transferred cash decreased. 

Page 18 GAO-05-968 Medicaid and Asset Transfers
median cash transfer amounts of $4,500 and $3,000, respectively.

32 (See 

table 3.) 

Table 3: Cash Transferred in the Previous 2 Years as Reported by Elderly Households, by ADL Limitation, Marital Status, and 

Gender, 2002 

Amount of cash transferred (in dollars) 

Demographic 

characteristic of 

household 

Elderly household 

(percentage of all 

elderly households) 

Percentage of 

group that 

transferred 

cash Minimum 

Median

(midpoint) 

Meana 

(average) Maximum

All elderly 65+ All elderly 65+ (100) 21.6 $50 $3,000 $8,800 $1,005,000

ADL limitation None (79.6) 22.7 50 3,000 8,970 1,005,000

One (10.2) 18.4 500 3,500 6,370 55,500

Two (4.4) 22.2 300 2,000 6,820 60,000

Three or more (5.8) 12.7 500 3,000 13,610 160,000

Marital status and Couples (46.2) 27.8 50 3,000 9,070 1,005,000

gender Single male (12.7) 20.8 50 4,500 11,760 420,000

Single female (41.1) 15.0 300 3,000 6,970 343,000

Source: GAO analysis of data from the 2002 Health and Retirement Study. 

a

Mean amounts of cash transferred have been rounded to the nearest $10.

Transfers of cash were also more likely to occur in households with higher

income and resource levels. Elderly households with both income and 

resources above the median—approximately 37 percent of all elderly 

households—were the most likely to transfer cash. In contrast, elderly 

households with both income and resources at or below the median were 

the least likely to transfer cash. With regard to amounts of cash 

transferred, the median amounts transferred for elderly households with

both income and resources above the median were twice as high ($4,000) 

as those for elderly households with both income and resources at or 

below the median ($2,000). (Table 4 shows the cash transferred by elderly

households in relation to the median income and resource levels.)

 32Elderly households that transferred cash had median total resources of $255,000, ranging 

from less than zero to $21,101,000, and a primary residence with a median net value of

$100,000, ranging from less than zero to $20,000,000. 

Page 19 GAO-05-968 Medicaid and Asset Transfers
Table 4: Cash Transferred in the Previous 2 Years as Reported by Elderly Households with Varying Levels of Income and 

Nonhousing Resources, 2002 

Amount of cash transferred (in dollars) 

Household incomea

Household

nonhousing 

resourcesb

Percentage of 

all elderly 

households

Percentage

of group that 

transferred 

cash Minimum

Median

(midpoint) 

Meanc

(average) Maximum

At or below median At or below median 36.7 10.4 $300 $2,000 $4,000 $130,000d

At or below median Above median 13.3 19.0 500 4,000 8,320 343,000e

Above median At or below median 13.3 27.5 100 2,000 3,910 60,000f

Above median Above median 36.7 31.7 50 4,000 12,010 1,005,000g

Source: GAO analysis of data from the 2002 Health and Retirement Study. 

a

The annual median income for all elderly households was $24,200.

b

The median nonhousing resources for all elderly households were $51,500.

c

Mean amounts of cash transferred have been rounded to the nearest $10.

d

Ninety-nine percent of households in this group reported transfers of cash of $30,000 or below.

e

Ninety-nine percent of households in this group reported transfers of cash of $120,000 or below.

f

Ninety-nine percent of households in this group reported transfers of cash of $25,000 or below.

g

Ninety-nine percent of households in this group reported transfers of cash of $141,000 or below.

Methods elderly individuals use to reduce their countable assets do not 

always result in a penalty period. Reducing debt and making purchases, 

such as for home modifications, for example, do not result in a penalty 

period and thus would not lead to delays in Medicaid eligibility for longterm care coverage. Other methods, however, could result in a penalty

period, depending on the specific arrangements made and the policies of

the individual state. For example, giving away assets as a gift generally

results in the imposition of a penalty period, but giving away assets valued 

at less than the average monthly private-pay rate for nursing home care 

may not, depending, in part, on whether the state imposes partial-month 

penalties. 

Some methods individuals use to reduce their countable assets do not

result in a penalty period and thus would not lead to delays in eligibility 

for Medicaid long-term care coverage. According to several elder law

attorneys and some state officials we contacted, one of the first methods

Medicaid applicants use to reduce assets is to spend their money, often by 

paying off existing debt, such as a mortgage or credit card bills, or by 

making purchases. When such purchases and payments convert a 

Methods of Reducing 

Assets May Not Result 

in a Penalty Period 

Some Asset Reduction 

Methods Do Not Delay 

Medicaid Eligibility

Page 20 GAO-05-968 Medicaid and Asset Transfers
countable resource, such as money in the bank, to noncountable

resources, such as household goods, they effectively reduce the assets that

are counted when determining Medicaid eligibility. Common purchases 

mentioned included renovating a home to make it more accessible for 

persons with disabilities, repairing or replacing items such as a roof or

carpeting, prepaying burial arrangements, buying a home, or having dental

work done. Elder law attorneys explained that once individuals are 

Medicaid-eligible, they and their families will have limited means. 

Therefore, they advise these individuals to update, renovate, repair, or 

replace old or deteriorating items such as homes and cars to reduce the 

need for maintenance and repairs in the future. No penalty is associated 

with paying a debt or making a purchase as long as the individual receives

something of roughly the same value in return. 

Another method married individuals use that does not result in a penalty 

period is seeking to raise the community spouse’s resource allowance 

above a state’s maximum level, which reduces the amount of income or 

resources considered available to the spouse applying for Medicaid

coverage.33 States establish, under federal guidelines, a maximum amount

of resources that a community spouse is allowed to retain. In general, the 

remaining resources are deemed available to be used to pay for the 

institutionalized spouse’s long-term care needs. In addition, if the 

community spouse’s income is less than the state’s minimum needs 

allowance, the state can choose to make up the shortfall by 

(1) transferring income from the institutionalized spouse or (2) allowing

the community spouse to keep resources above the resource allowance so 

that the additional funds can be invested to generate more income.34 Under 

the latter approach, the community spouse may be able to retain a 

significant amount of resources in order to yield the allowable amount of

income. For example, a community spouse might ask to retain a savings 

account with $300,000 and an annual interest rate of 2 percent that would 

yield an additional $500 in income per month. 

 33Couples also may seek to increase the minimum needs allowance, the state-established 

minimum amount of income that the community spouse is permitted to retain. Generally, 

this would only be allowed if the couple could prove that the state-established needs

allowance is too low to cover the community spouse’s living expenses. As with increases in

the resource allowance, increasing the minimum needs allowance would require approval

from a court or fair hearings process but would not result in a penalty period. 

34A combination of these approaches may be used if the shortfall in income cannot be made

up completely using only one of the approaches. 

Page 21 GAO-05-968 Medicaid and Asset Transfers
Some of the other methods elderly individuals use to reduce their 

countable assets could result in a penalty period and thus could delay 

Medicaid coverage for long-term care services, according to the elder law

attorneys and state and federal officials we contacted. Whether or not an 

asset reduction method results in a penalty period depends on the specific

arrangements made and the policies of the state. Therefore, the extent to 

which each of the following methods is used is likely to vary by state. 

Other Methods to Reduce 

Assets Could Delay 

Medicaid Coverage for

Long-Term Care Services 

• Gifts. Under this method, an individual gives some or all assets to another 

individual as a gift, for example, by giving his or her children a cash gift. 

Although this is probably the simplest method to reduce assets, some elder

law attorneys told us that this method would be one of the last things a 

person would want to do. Not only would the individual lose control of his 

or her assets, but giving a gift would likely be a transfer for less than fair

market value and therefore result in a penalty period. As with other asset 

transfers, if individuals can prove that they gave away their assets 

exclusively for a purpose other than qualifying for Medicaid long-term care 

coverage, or if the transfer is to a spouse or a disabled child, then there 

would be no penalty.35 Additionally, if a state treats each transfer as a 

separate event and does not impose penalty periods for time periods 

shorter than 1 month, then transfers for amounts less than the average 

monthly private-pay rate for nursing home care in that state do not result

in a penalty period.36 Because the penalty period begins at approximately 

the date of asset transfer, individuals that meet Medicaid income eligibility 

requirements can give away about half of their resources and use their 

remaining resources to pay privately for long-term care during which time

 35CMS guidance included in the State Medicaid Manual indicates that states must determine 

what constitutes sufficient proof that an asset was transferred exclusively for a purpose

other than to qualify for Medicaid. However, the manual states that verbal assurances are 

not sufficient and that there must be convincing evidence about the purpose for the asset

transfer. According to officials from some of the nine states we contacted, individuals who 

gave gifts before they could know of a need for long-term care must prove that the transfer

was for a purpose other than qualifying for Medicaid. For example, if an individual gave his

or her child a down payment on a house or grandchild money for school and later had a 

stroke that led to the individual’s need for long-term care, the individual may be able to

prove that the gift was not made in order to qualify for Medicaid long-term care coverage. 

36Under the Medicaid statute, the penalty period is calculated by dividing the dollar amount 

of the assets transferred by the average monthly private-pay rate for nursing home care in 

the state (or the community, at the option of the state). Thus, a transfer for less than the 

average monthly nursing home private-pay rate would result in a penalty period of less than

1 month. None of our nine sample states imposed penalties for less than 1 month. 

Page 22 GAO-05-968 Medicaid and Asset Transfers
any penalty period would expire.37 This is often referred to as the “half a 

loaf” strategy because it preserves at least half of the individual’s 

resources. 

• Financial Instruments. Some financial instruments, namely annuities 

and trusts, have been used to reduce countable assets to enable 

individuals to qualify for Medicaid. Annuities, which pay a regular income

stream over a defined period of time in return for an initial payment of

principal, may be purchased to provide a source of income for retirement.

According to a survey of state Medicaid offices,38 annuities have become a 

common method for individuals to reduce countable resources for the 

purpose of becoming eligible for Medicaid because they are used to 

convert countable resources, such as money in the bank, to a resource 

that is not counted, and a stream of income.

39 If converting the resource to 

an annuity results in individuals’ having countable resources below the 

state’s financial eligibility requirements, then these individuals can become

eligible for Medicaid if their income, including the income stream from the 

annuity, is within the Medicaid income requirements for the state in which 

they live.40 Married individuals can use their joint resources to purchase an

annuity for the sole benefit of the community spouse. Since a community

spouse’s income is not counted in a Medicaid eligibility determination, an 

annuity effectively reduces the countable assets of the applicant. Annuities

must be actuarially sound—that is, the expected return on the annuity 

must be commensurate with the reasonable life expectancy of the 

beneficiary—or they are considered a transfer of assets for less than fair 

market value and result in a penalty.41 Trusts are arrangements in which a 

 

l f

37For example, a single elderly male with $50,000 in resources gives one-half of his

resources away, leaving him with $25,000. He uses the remaining $25,000 in resources to

pay privately for his long-term care costs. Assuming that the average private payment for a

nursing home is $5,000 per month, his $25,000 in resources would cover 5 months of care—

which is equal to the same amount of time as any penalty period that would be calculated

and imposed by the state. He would then become eligible for Medicaid long-term care

coverage, assuming his need for nursing home care continued. 

38See National Association of State Medicaid Directors, The Role of Annuities in Medicaid 

Financia Planning: A Survey o State Medicaid Agencies (Washington, D.C.: American 

Public Human Services Association, October 2003). 

39Although CMS acknowledged that annuities are used in this manner in some states, CMS 

officials told us that an annuity should be considered a countable resource if it can be 

converted to cash, for example, by being sold for a lump sum.

40Individuals living in states with a medically needy program may be eligible for Medicaid if

their income is less than their monthly long-term care costs.

41To determine whether an annuity is actuarially sound, states are to use the life

expectancy tables included in the State Medicaid Manual, which are based on information 

published by the Office of the Actuary of the Social Security Administration. 

Page 23 GAO-05-968 Medicaid and Asset Transfers
grantor transfers property to a trustee with the intention that it be held, 

managed, or administered by the trustee for the benefit of the grantor or 

certain designated individuals. The use of trusts as a method of gaining 

Medicaid eligibility for long-term care services was addressed in 1993 

legislation.42 The law and associated CMS guidance indicate how assets 

held in a trust, as well as the income generated by a trust, are to be

counted in the Medicaid eligibility process.

43 According to CMS, since this

legislation was enacted, the use of trusts as a Medicaid asset reduction 

method has declined. 

• Transfer of Property Ownership. Medicaid allows individuals to

transfer ownership of their home, without penalty, to certain relatives,

including a spouse or a minor child (under age 21).44 Other transfers of a 

home or other property within the look-back period may result in a 

penalty period if they were for less than fair market value. For example, 

individuals might transfer ownership of their home while retaining a “life 

estate,” which would give them the right to possess and use the property 

for the duration of their lives. According to the CMS State Medicaid 

Manual, this would be a transfer for less than fair market value and thus 

would result in a penalty period.45

• Personal Services Contract or Care Agreement. Personal services 

contracts or care agreements are arrangements in which an individual 

pays another person, often an adult child, to provide certain services. 

Based on CMS guidance, relatives can be legitimately paid for care they 

provide, but there is a presumption that services provided without charge 

 42Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, §13611, 107 Stat. 312, 622-

27. 

43The treatment of trusts is detailed in the Medicaid statute and the State Medicaid Manual

issued by CMS. Generally, to the extent that assets in a trust are available to an individual, 

they are counted in determining Medicaid eligibility. Assets in a trust that are not available

to the individual generally are considered to be transferred for less than fair market value

and thus could be subject to the transfer of asset penalties. Certain types of trusts, such as

certain trusts established for the benefit of a disabled child or individual or certain trusts in 

which the state is the remainder beneficiary, are exempt from transfer of asset penalties.

44Individuals also are allowed to transfer ownership of their home without penalty to (1) a 

child of any age who is disabled, (2) a sibling with an equity interest in the home who 

resided in the home for at least 1 year before the individual’s institutionalization, and (3) an 

adult child who resided in the home for at least 2 years immediately prior to the

individual’s institutionalization and provided care to the individual that allowed him or her

to reside in the home.

45An example provided in CMS guidance assumes that the individual transferring the home 

does not receive any compensation for the difference between the life estate and the value 

of the home. The value of the life estate is determined using a table indexed for age 

provided by CMS. 

Page 24 GAO-05-968 Medicaid and Asset Transfers
at the time they were rendered were intended to be provided without 

compensation. Under this presumption, payments provided for services in

the past would result in a penalty period. 

• “Just Say No” Method. Under this method, the institutionalized spouse

transfers all assets to the community spouse, which is permitted under the 

law. The community spouse then refuses to make any assets available to 

support the institutionalized spouse and retains all of the couple’s assets. 

In turn, the institutionalized spouse may seek Medicaid coverage for longterm care.46 Whether this method results in a delay in Medicaid coverage 

for long-term care services depends on the policies of the individual state. 

• Promissory Notes. A promissory note is a written, unconditional

agreement, usually given in return for goods, money loaned, or services 

rendered, whereby one party promises to pay a certain sum of money at a 

specified time (or on demand) to another party. According to CMS and 

state officials, some individuals have given assets to their children in 

return for a promissory note as a means to reduce their countable assets.

47

For example, we were told of a case in which a mother gave her daughter

money in return for a promissory note with a schedule for repayments. 

Although the note was scheduled to be repaid during the mother’s 

expected lifetime, the payment arrangements called for the child to repay 

only the interest until the final payment, when the entire principal was 

due. Additionally, each month the mother forgave a portion of the note 

that equaled slightly less than the average monthly nursing home cost.

48

Whether promissory notes result in a delay in Medicaid coverage for longterm care would depend on the specific details of the note and the policies 

of the state. 

 46In such cases, eligibility of the institutionalized spouse will not be denied provided the

state has a legal right to obtain support from the community spouse for the care provided

to the institutionalized spouse.

47According to CMS officials, under SSI policy, which serves as the basis for Medicaid

policy on the treatment of assets, promissory notes are a countable resource. These 

officials said, however, that some states are treating promissory notes in a way similar to

how they treat annuities, that is, they are not treating the value of the note as a countable

resource. As issues arise, CMS is telling states that they can count a promissory note as a 

countable resource. 

48As with the small monthly transfers, forgiving a loan for an amount less than the average 

monthly nursing home private-pay rate would result in a penalty period of less than 1

month, which some states do not impose. 

Page 25 GAO-05-968 Medicaid and Asset Transfers
None of the nine states we reviewed systematically tracked or analyzed 

data that would provide information on the incidence of asset transfers 

and the extent to which penalties were applied in their states. Nationwide, 

all states requested information about applicants’ assets, including 

transfers of assets, through Medicaid application forms, interviews to

determine Medicaid eligibility, or both. The nine states we reviewed 

generally relied on applicants’ self-reporting of financial information and 

varied in the amount of documentation they required and in the extent to

which they verified the assets reported. According to officials in these 

states, transfers that were not reported by applicants were difficult to 

identify. 

Although officials from the nine states reviewed reported that some 

individuals transferred assets for purposes of qualifying for Medicaid, 

these states did not systematically track and analyze data on the incidence 

of asset transfers or associated penalties. As a result, the states could not 

quantify the number of people who transferred assets, the assets 

transferred, or the penalties applied as a result of transfers for less than 

fair market value. Officials in four of the nine states informed us that they 

had computer-based systems for recording applicant information, 

including data on penalties that resulted in a delay in Medicaid eligibility 

but they did not regularly analyze these data and thus did not have 

information available on the number of applicants who transferred assets. 

One of these states—Hawaii—was able to determine that there were no 

individuals serving a penalty at the time of our interview. However, 

because the state’s system only kept data on applicants currently serving a

penalty, the state could not provide us with data on the number of people

who had served penalties in the past. One state—Montana—that did not

report having a computer-based application system, did report collecting 

several months of data on asset transfers from its counties in the fall of 

2004, but a state official told us that as of mid-July 2005, the data had not 

been analyzed. 

Although states could not systematically track and analyze asset transfers,

state officials were familiar with and had observed different methods that

elderly individuals used to transfer assets in their states. For example, 

state officials frequently identified cash gifts as the most common method 

used to reduce the amount of countable assets. Some states had taken 

steps to try to deter the use of financial instruments, such as annuities. For 

example, two states reporting changing their laws to expand the 

circumstances under which annuities are counted as available resources 

for purposes of determining Medicaid eligibility for long-term care. 

States Could Not 

Identify the Extent to 

Which Individuals 

Transferred Assets 

States Reviewed Did Not 

Systematically Track and 

Analyze Applicants’ 

Transfers of Assets

Page 26 GAO-05-968 Medicaid and Asset Transfers
Similarly, some states have tried to deter the use of the “Just Say No”

method by pursuing financial support from the community spouse or by 

requiring the institutionalized spouse to take the community spouse to

court to recover his or her share of the assets. 

Some officials commented that as states took actions to identify and 

prevent methods used to make transfers in order to become eligible for 

Medicaid long-term care coverage, new ways emerged to make transfers 

for this purpose that are permitted under the law. For example, one state 

took action to try to deter multiple small transfers by adding the amount of

the transfers together, under certain circumstances, for purposes of 

calculating the penalty period.49 According to this state’s officials,

however, some attorneys had advised their clients to transfer very small 

amounts of money in consecutive months and make one final transfer of a

significant amount before applying for Medicaid. Under the state’s policy, 

these transfers are added together and the penalty period begins at the 

month of the first transfer, as opposed to the month of the final transfer. 

As a result, some or all of the penalty period may have expired by the time 

the applicant applies for Medicaid long-term care coverage. 

Nationwide, states used the application process—application forms,

interviews, or both—to determine the level of assets held by Medicaid

applicants and whether applicants transferred assets.50 Applications in 38 

states requested comprehensive information about assets—for example, 

by requiring applicants to respond to questions regarding whether they 

had certain types of assets, such as checking accounts or real estate.

Another 7 states’ applications requested general information about 

applicants’ assets, and the remaining 6 states reported relying on the 

interview process to collect information on assets.

51 Thirty states required

in-person or telephone interviews with either the applicant or an 

Nationwide, States 

Request Information on 

Assets and Transfers of 

Assets as Part of the 

Medicaid Application 

Process 

 49The amount of assets transferred are added together if (1) transfers occurred in the same

month, (2) transfers occurred in consecutive months, (3) the penalty periods for the 

transfers would overlap, or (4) a penalty period ended in the month immediately prior to

the transfer. 

50In June and July 2005, we asked state officials to provide their current applications for

Medicaid long-term care coverage. Where states asked for clarification or had multiple

applications for Medicaid long-term care coverage, we asked for applications appropriate

for nursing home coverage. 

51These six states either had applicants complete their application during the interview

process with eligibility case workers or had brief applications that did not ask about assets.

Page 27 GAO-05-968 Medicaid and Asset Transfers
applicant’s appointed representative.52 Table 5 summarizes states’

application processes. (See app. III for more details on the application 

processes in each state.)

Table 5: Information Required during States’ Application Processes for Medicaid 

Eligibility 

Method of gathering 

information Information required 

Number of 

states 

Application Comprehensive information on assets 38

General information on assets 7

No information on assets 6a

Interview Required as part of the application process 30

Source: GAO analysis of state and county information, June and July 2005. 

Note: In June and July 2005, we asked state officials to provide their current applications for Medicaid

long-term care coverage. Where states asked for clarification or had multiple applications for 

Medicaid long-term care coverage, we asked for applications appropriate for nursing home coverage.

Some states referred us to a county eligibility office for information about the Medicaid application 

process. As such, the information on the interview requirement in these states is based on the 

response of the official from the county eligibility office.

a

Of the six states that did not ask about assets, two states had applicants complete their application 

during the interview process with eligibility case workers and four states had brief applications. All six

states required interviews in which officials collected information on applicants’ assets.

Medicaid application forms in 44 states asked applicants to report whether 

they had transferred assets. Eleven of the 44 states’ applications asked

whether applicants had transferred assets in the past 36 months, the 

required look-back period for most assets; 13 asked applicants whether 

they had transferred assets in the past 60 months, the required look-back 

period for trusts; and 17 did both.53 Of the applications in the remaining 3 

states, 1 asked about assets ever transferred; 1 asked applicants to report 

any transfers, including the date of the transfer, on a separate form; and 1 

asked about transfers in the prior 30 months.

54 (See app. IV for details on 

the characteristics of Medicaid application questions related to transfers 

 52Some states referred us to a county eligibility office for information about the Medicaid 

application process. As such, the information about the interview requirement in these 

states is based on the response of the official from the county eligibility office. 

53Several states that did not ask about transfers in the past 60 months had a specific

question on their application form about trusts that could be used as an indication for

whether further review is necessary. 

54Prior to the Omnibus Budget Reconciliation Act of 1993, the federally mandated lookback period for transfers of assets was 30 months. 

Page 28 GAO-05-968 Medicaid and Asset Transfers
of assets in each state.) Although the 7 remaining states did not have a 

question about transfers on their applications, they all required interviews

as part of the application process. 

The nine states we reviewed generally relied on the information applicants

reported during the application process—the application, supporting 

documentation, and interviews—to identify transfers of assets. The states

generally required applicants to submit documentation of their assets as

part of the application process (see table 6). The type of documentation 

required varied by type of asset. For example, for trusts, annuities, and life

insurance, states generally required a copy of the agreement or policy; for 

real estate, states generally required a copy of the deed or documentation 

of the value from a tax assessment or broker. For more liquid assets, such

as checking and savings accounts, four of the nine states contacted 

reported requiring a copy of 1 month’s statements. However, the remaining

five states reported requiring or collecting documentation for longer 

periods of time ranging from 3 months to 3 years. For example, Florida 

generally collected at least 3 months of bank statements from individuals

seeking nursing home coverage, South Carolina required applicants to 

submit a total of 14 months of statements covering points in time over a 3-

year period, and Montana generally collected bank statements dating back

3 years. 

Table 6: Nine States’ Requirements for Documentation of Assets 

Nine States’ Identification 

of Asset Transfers 

Predominately Relied on 

Applicant Reporting

Documentation requirement Number of states

Checking and savings accounts

Certificates of deposit 

Stocks and bonds 

Annuities 

Trusts

Retirement accounts 

Life insurance policies 

Real estate

Vehicles 

9

Income

Business equity for self-employed 

8

Prepaid burial arrangements 6

Federal tax returns 

State tax returns

1

Source: GAO analysis of state information, July 2005. 

Page 29 GAO-05-968 Medicaid and Asset Transfers
To verify applicants’ assets, the nine states used other information 

sources, to varying degrees, in addition to the documentation provided by 

applicants. Generally, states were more likely to verify information related

to possible income sources for applicants, such as the Social Security 

Administration and unemployment offices, than for data sources on 

possible resources, such as motor vehicle departments and county 

assessor offices. For example, seven of the nine states reported using 

information from an Income and Eligibility Verification System (IEVS), a

system that matches applicant-reported income information with data

from the Internal Revenue Service, the Social Security Administration, and 

state wage reports and unemployment benefits, for all or almost all of their 

applicants. In contrast, five of the nine states used information from

county assessor offices that provide information on property taxes and 

thus property ownership, and four of these states used this source to

verify resources for half of their Medicaid applicants or less. (See table 7 

for the proportion of applicants for which the nine states used specific

sources to verify applicants’ assets.)

Table 7: Proportion of Applicants for Which Nine Sample States Used Specific Asset Verification Sources 

Number of states using method for

Source 

All or almost 

all applicants

More than

half of 

applicants

About half of 

applicants 

Less than 

half of 

applicants

Method not 

used

Social Security Administration 9 0 0 0 0

Income and Eligibility Verification System (IEVS)a 7 0 0 0 2

Unemployment office 7 1 0 1 0

Worker’s compensation office 4 1 0 2 2

Department of motor vehicles 2 0 1 3 3

State/local tax authorities 2 0 0 2 5

County assessor offices 1 0 2 2 4b

Financial institutions 0 1 2 5 1

Source: GAO analysis of state information, July 2005. 

a

IEVS matches applicant-reported income information with data from the Internal Revenue Service,

the Social Security Administration, and state wage reports and unemployment benefits.

b

One state did not obtain data from county assessor offices because the state can access a statewide

assessor system.

Regarding transfers of assets, the nine states asked on their Medicaid 

application forms, in interviews, or both, whether applicants had 

transferred assets. Officials from the nine states indicated that transfers

that are not reported by applicants or a third party are generally difficult to 

Page 30 GAO-05-968 Medicaid and Asset Transfers
identify. Three of the nine states did not have a process to identify 

unreported transfers. The remaining six states generally relied on certain 

indicators from applicants’ asset documentation, the states’ asset 

verification data, case worker interviews, or a combination of these 

factors to try to identify unreported transfers. Following are two examples

of how states used these indicators: 

• South Carolina asked for the previous 12 months of bank statements and 

also asked for statements from the 24th and 36th

 month preceding the 

application. South Carolina officials reviewed these bank statements to

ascertain whether there had been large reductions in the amount of money

in the account over the past 3 years. If a large reduction was detected, the 

state would ask the applicant for information regarding the use of the 

money. 

• Ohio officials told us that the state generally relied on case workers’

experience to decide whether additional review was necessary, noting that

there are certain indications that a transfer might have occurred, which

would prompt additional review of the application. Examples include the 

opening of a new bank account, an applicant who is living beyond his or 

her means, and an applicant who recently sold his or her house but reports 

having no resources. 

To help states comply with requirements related to asset transfers and

Medicaid, CMS has issued guidance primarily through the State Medicaid 

Manual. The agency has also provided technical assistance, through its 

regional offices, to individual states in response to their questions; 

communicated to states through conferences; and funded a special study 

on the use of annuities to shelter assets. Officials from the majority of CMS

regional offices and the nine states we contacted indicated that some 

additional guidance, such as on the use of financial instruments, would be 

helpful. CMS officials, however, noted that it would be difficult to issue 

guidance that would be applicable in all situations given the constantly 

changing methods used to transfer assets. 

In response to provisions in the Omnibus Budget Reconciliation Act of

1993, CMS updated the State Medicaid Manual in 1994 to include 

provisions relating to transfers of assets, including the treatment of trusts. 

The portion of the manual relating to asset transfers and trusts generally

includes definitions of relevant terms, such as assets, income, and 

resources; information on look-back periods; penalty periods and 

penalties for transfers of less than fair market value; exceptions to the 

application of such penalties; and spousal impoverishment provisions. The 

CMS Provides

Guidance on

Transfers of Assets 

through the State 

Medicaid Manual and 

in Response to 

Specific Questions 

from States 

Page 31 GAO-05-968 Medicaid and Asset Transfers
portion of the manual regarding trusts includes other definitions relating 

specifically to trusts, provisions on the treatment of the different types of

trusts (such as revocable and irrevocable),55 and exceptions to the 

specified treatment of trusts. CMS is in the process of revising certain 

policies in the manual related to funeral and burial arrangements.

56 CMS 

officials were not able to provide a date for when revisions to the manual

would be completed and stated that they did not anticipate any major 

revisions to the asset transfer provisions in the Medicaid manual. 

CMS has provided additional guidance to states about asset transfers 

through conferences and one special study: 

• Conferences. CMS officials reported providing states with information on 

asset transfer issues at its annual Medicaid eligibility conference. At this

conference, issues regarding transfers of assets have been discussed as a

formal agenda item, in panels on state experiences, or in question and 

answer sessions. 

• Special study. In 2005, the agency released a report that examined the 

use of annuities as a means for individuals to shelter assets to become

Medicaid-eligible.57 While this study did not identify a universal

recommendation for the policy on annuity use or determine the extent to

which the use of annuities is growing or declining, it suggested that 

annuities established for the purpose of becoming Medicaid-eligible do

lead to additional costs for federal and state governments in that

individuals may shift assets from countable resources into a resource that

is not counted, and into a stream of income. In some cases, the use of

annuities results in individuals qualifying for Medicaid more quickly. Using 

the estimated cost of annuities to Medicaid from a sample of five states

and an examination of policies regarding annuities in all states, the study 

 

t

55Revocable trusts are trusts that, under state law, can be revoked by the individual

creating the trust. In contrast, an irrevocable trust cannot be revoked after its creation. 

56The policy relating to funeral and burial arrangements had been previously communicated 

to state Medicaid directors in a letter in 1996. 

57See Robert A. Levy et al., The CNA Corporation, under contract with CMS, Analysis of the 

Use of Annuities to Shelter Asse s in State Medicaid Programs (Alexandria, Va.: January 

2005). The study presents information from analyses of (1) interviews conducted with

Medicaid policy officials, county eligibility workers, and consumer and industry

representatives; (2) focus groups with potential nursing home beneficiaries; and (3) the

modeling and simulation of actual Medicaid case files from 11 counties within a total of five

states. 

Page 32 GAO-05-968 Medicaid and Asset Transfers
estimated that annuities cost the Medicaid program almost $200 million 

annually.58

Officials from CMS’s regional offices informed us that they provided

technical assistance on asset transfer issues to 29 states over the past year.

The types of technical assistance provided to these states ranged from

confirming existing Medicaid policy to advising them on ways to address 

specific asset transfer methods. When asked for examples of the specific 

issues for which states sought technical assistance, officials in seven 

regional offices said they had responded to states’ questions about

annuities. Other issues for which states requested technical assistance 

included the treatment of trusts, the policy on spousal impoverishment, 

and promissory notes. 

Officials from the majority of CMS regional offices noted that the states in

their regions could benefit from additional guidance. Additionally, the 

majority of states we contacted concurred that guidance related to 

transfers of assets would be helpful. These states and regional office 

officials indicated a need for more guidance on topics such as annuities,

trusts, and the relationship between asset divestment and spousal

impoverishment. CMS central office officials said that the agency faces 

challenges in issuing guidance that would be applicable to all situations 

given the constantly changing methods individuals use to transfer assets in 

a manner that avoids the imposition of a penalty period. CMS officials said

that states’ efforts to identify and address asset transfer issues are 

constantly changing, as methods for reducing countable assets are 

identified, increase in use, and then diminish. For example, CMS officials 

cited the use of personal care agreements, where the individual applying

for Medicaid long-term care coverage hires a family member to perform 

services, as a practice that at one time was frequently used to transfer

assets. In some cases, these agreements paid exorbitant fees for the 

services provided, and CMS officials provided technical assistance to 

 58To estimate the proportion of the nonpoor (i.e., those above the federal poverty level)

Medicaid beneficiaries in nursing homes who had annuities and the cost of annuities to the 

Medicaid program, Levy, et al. collected Medicaid case files from a sample of five states.

Using information from these case files and various other factors, such as nursing home

costs and income and resource constraints on Medicaid eligibility, the researchers

developed a model to estimate the costs of annuities in the five states. Using these

estimates and an analysis of how restrictive states’ policies were regarding the use of

annuities, the researchers estimated a national cost of annuities to the Medicaid program.

The study acknowledges that its estimates of these costs are likely to be less than the costs

perceived by most Medicaid officials. 

Page 33 GAO-05-968 Medicaid and Asset Transfers
states to help them limit the use of such agreements, at which point the 

practice diminished in use. CMS officials maintain that blanket guidance 

from the agency cannot necessarily address all of the issues that states 

face. 

We provided CMS and the nine states in our sample an opportunity to

comment on a draft of this report. We received written comments from 

CMS (see app. V). We also received technical comments from CMS and 

eight of the nine states, which we incorporated as appropriate. 

CMS noted that the Medicaid program will only be sustainable if its 

resources are not drained to provide health care assistance to those with 

substantial ability to contribute to the costs of their own care. CMS 

acknowledged, however, the difficulty of gathering data on the extent and 

cost of asset transfers to the Medicaid program. In particular, CMS 

commented that the law is complex and that the techniques individuals 

and attorneys devise to divest assets are ever-changing. CMS reiterated the 

President’s budget proposal to tighten existing rules related to asset

transfers, and associated estimated savings, which we had noted in the 

draft report. CMS further noted one limitation to our analysis that we had 

disclosed in the draft report—that the HRS only addressed cash transfers 

provided to relatives or other individuals. CMS commented that it believes 

that substantial amounts of assets are sheltered by individuals who 

transfer homes, stocks and bonds, and other noncash property. We agree 

with CMS’s view that information on such noncash transfers would be 

valuable, but as we noted in the draft report the HRS does not include 

such data. 

As agreed with your offices, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 30 days after its 

issue date. At that time, we will send copies of this report to the 

Administrator of the Centers for Medicare & Medicaid Services. We will

also make copies available to others upon request. In addition, the report 

will be available at no charge on the GAO Web site at http://www.gao.gov. 

Agency and State 

Comments 

Page 34 GAO-05-968 Medicaid and Asset Transfers
If you or your staffs have any questions about this report, please contact

me at (202) 512-7118 or allenk@gao.gov. Contact points for our Offices of

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix VI. 

Kathryn G. Allen 

Director, Health Care

Page 35 GAO-05-968 Medicaid and Asset Transfers
Appendix I: Information about the Health and Appendix I: Information about the Health and Retirement Study 

Retirement Study 

The Health and Retirement Study (HRS) is a longitudinal national panel

survey of individuals over age 50 sponsored by the National Institute on 

Aging and conducted by the University of Michigan. HRS includes 

individuals who were not institutionalized at the time of the initial

interview and tracks these individuals over time, regardless of whether 

they enter an institution. Researchers conducted the initial interviews in

1992 in respondents’ homes and conducted follow-up interviews over the 

telephone every second year thereafter. HRS questions pertain to physical

and mental health status, insurance coverage, financial status, family 

support systems, employment status, and retirement planning. 

For this report, we used the most recent available HRS data (2002), for 

which the data collection period was February 2002 through March 2003. 

These data include information for over 18,000 Americans over the age of 

50. We limited our analysis to data for households with at least one elderly 

individual, which we defined as an individual aged 65 or older. Thus, the 

data we used were from a sample of 10,942 individuals (8,379 households) 

that represented a population of 28.1 million households. 

From these data we estimated the nationwide level of assets held by 

households with at least one elderly individual, the extent to which these 

households transferred cash, and the amounts transferred. Our analysis

underestimates the extent to which elderly households transferred assets

and the amounts of assets transferred because the study data included 

only cash transfers, not other types of transfers. HRS also did not assess 

whether the transfers were related to individuals’ attempts to qualify for 

Medicaid coverage for long-term care services. 

To assess the reliability of the HRS data, we reviewed related 

documentation regarding the survey and its method of administration, and 

we conducted electronic data tests to determine whether there were 

missing data or obvious errors. On this basis, we determined that the data

were sufficiently reliable for our purposes. 

Page 36 GAO-05-968 Medicaid and Asset Transfers
Appendix II: Methodology for Selecting Appendix II: Methodology for Selecting Sample States 

Sample States 

To select a sample of states to review in more detail regarding their 

Medicaid eligibility determination practices, including the process for 

identifying whether applicants had transferred assets, we assessed the

prevalence of five factors in each of the 51 states. 

1. The percentage of the population aged 65 and over, which we

determined using 2000 census data from the Census Bureau. 

2. The cost of a nursing home stay for a private room for a private-pay 

patient based on data from a 2004 survey conducted for the MetLife 

Company. 

3. The proportion of elderly (aged 65 and over) with incomes at or above 

250 percent of the U.S. poverty level, which was based on information 

from the Census Bureau using the 2000 and 2002 Current Population 

Surveys. 

4. Medicaid nursing home expenditures as reported by states to CMS.1

5. The availability of legal services specifically to meet the needs of the

elderly and disabled, based on membership data from the National

Academy of Elder Law Attorneys. 

For each factor, we ranked the states from low to high (1 to 51) and then 

summed the five rankings for each state. On the basis of these sums, we

grouped the states into three clusters (low, medium, and high) using 

natural breaks in the data as parameters (see table 8). We then selected 

three states from each cluster using randomly generated numbers, for a 

total sample of nine states. 

 1

Each quarter, states submit Medicaid program expenditures to CMS using the CMS-64

form. Our analysis used the fiscal year 2000 nursing home expenditures as reported on the 

CMS-64. 

Page 37 GAO-05-968 Medicaid and Asset Transfers
Appendix II: Methodology for Selecting 

Sample States 

Table 8: Clusters Used for State Sample Selection 

Cluster States

Low Arkansas, Georgia, Idaho, Louisiana, Mississippi, Montana, New Mexico, 

South Carolina, South Dakota, Utah, Vermont, Wyoming 

Medium Alabama, Alaska, Arizona, Colorado, Delaware, District of Columbia, 

Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, 

Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, North 

Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, Tennessee, 

Texas, Virginia, Washington, West Virginia 

High California, Connecticut, Florida, Massachusetts, New Jersey, New York,

Ohio, Pennsylvania, Wisconsin

Source: GAO analysis of data from the Census Bureau, CMS, The MetLife Market Survey of Nursing Home & Home Care Costs, and 

the National Association of Elder Law Attorneys. 

Note: States in bold are the states in our sample.

Page 38 GAO-05-968 Medicaid and Asset Transfers
Appendix III: Characteristics of Medicaid

Long-Term Care Application Processes, by

State 

Application asks for

State 

Comprehensive 

information about

assetsa

General

information on 

assets 

Interview is

required as part of

application 

processb

Alabama 9 9

Alaska 9 9c

Arizona d9c

Arkansas 9 9

California 9 c

Colorado 9 9

Connecticut 9 c

Delaware 9 9c

District of Columbia e9

Florida 9 f

Georgia d9c

Hawaii 9 9

Idaho e9 9c

Illinois 9

Indiana d 9

Iowa 9 c

Kansas 9

Kentucky g g9c

Louisiana 9 9

Maine 9 9

Maryland 9 9c

Massachusetts 9

Michigan 9

Minnesota 9

Mississippi 9 9

Missouri 9

Montana 9

Nebraska 9 9c

Nevada 9

New Hampshire e9 9

New Jersey 9 c

New Mexico 9 9c

New York 9 9c

Appendix III: Characteristics of Medicaid 

Long-Term Care Application Processes, by 

State 

Page 39 GAO-05-968 Medicaid and Asset Transfers
Appendix III: Characteristics of Medicaid

Long-Term Care Application Processes, by

State 

Application asks for

State 

Comprehensive 

information about

assetsa

General

information on 

assets 

Interview is

required as part of

application 

processb

North Carolina g g9

North Dakota 9

Ohio 9 9

Oklahoma 9 9c

Oregon 9 9

Pennsylvania 9

Rhode Island 9

South Carolina 9 c

South Dakota 9

Tennessee d9c

Texas 9 9

Utah 9 9

Vermont 9 9

Virginia 9 c

Washington 9 9c

West Virginia 9 9c

Wisconsin 9

Wyoming 9 9

Total 38 7 30

Source: GAO analysis of state and county information, June and July 2005. 

Note: In June and July 2005, we asked state officials to provide their current applications for Medicaid

long-term care coverage. Where states asked for clarification or had multiple applications for 

Medicaid long-term care coverage, we asked for applications appropriate for nursing home coverage.

a

Applications were considered to have asked for comprehensive information on assets if they required 

applicants to respond to questions regarding whether they had certain types of assets. For example,

applications required applicants to indicate whether they had checking and savings accounts, stocks

and bonds, retirement accounts, burial insurance, real estate, and vehicles, along with other assets.

b

States were asked whether they required an interview as part of the application process. In our 

analysis, we considered an interview as either a face-to-face meeting or a telephone conversation 

with either the applicant or an appointed representative. States that do not require an interview may

allow interviews at the discretion of the applicant or the Medicaid eligibility case worker.

c

In this state, we were referred to a county eligibility office for information about the interview;

therefore, interview requirements in this state are based on the response of the official from the 

county eligibility office.

d

The state had a brief application that did not ask about assets.

e

While the state asked applicants to respond to whether they had certain types of assets, the 

application was limited with respect to the types of assets applicants were required to address. For 

example, the application may have only asked about cash, bank accounts, life insurance, real 

property, and “other.”

Page 40 GAO-05-968 Medicaid and Asset Transfers
Appendix III: Characteristics of Medicaid

Long-Term Care Application Processes, by

State 

f

The state required interviews for applicants who the state deemed to have complex assets, including 

those who reported transferring assets.

g

The state had applicants complete their application during the interview process with eligibility case

workers.

Page 41 GAO-05-968 Medicaid and Asset Transfers
Appendix IV: Characteristics of Medicaid

Long-Term Care Applications Related to

Transfers of Assets, by State 

State 

Application asks about 

transfers within previous 

36 monthsa

Application asks about 

transfers within previous 

60 monthsa

Alabama 9 9

Alaska 9

Arizona 9 b

Arkansas c c

California d

Colorado 9

Connecticut 9 9

Delaware 9 b

District of Columbia 9

Florida 9

Georgia e e

Hawaii 9

Idaho b

Illinois 9 9

Indiana e e

Iowa 9

Kansas 9

Kentucky f f

Louisiana g g

Maine 9 b

Maryland 9 9

Massachusetts 9 9

Michigan 9 b

Minnesota 9 9

Mississippi 9

Missouri 9

Montana 9 9

Nebraska 9

Nevada 9 b

New Hampshire 9

New Jersey 9 b

New Mexico 9 b

New York 9 9

North Carolina f f

Appendix IV: Characteristics of Medicaid 

Long-Term Care Applications Related to 

Transfers of Assets, by State 

Page 42 GAO-05-968 Medicaid and Asset Transfers
Appendix IV: Characteristics of Medicaid

Long-Term Care Applications Related to

Transfers of Assets, by State 

State 

Application asks about 

transfers within previous 

36 monthsa

Application asks about 

transfers within previous 

60 monthsa

North Dakota 9

Ohio e e

Oklahoma 9 9

Oregon 9 9

Pennsylvania 9 9

Rhode Island 9 9

South Carolina 9 9

South Dakota 9 9

Tennessee e e

Texas 9 b

Utah 9 9

Vermont 9 9

Virginia 9

Washington 9

West Virginia 9

Wisconsin 9 9

Wyoming 9 b

Total 28 30

Source: GAO analysis of state and county information. 

Note: In June and July 2005, we asked state officials to provide their current applications for Medicaid

long-term care coverage. Where states asked for clarification or had multiple applications for 

Medicaid long-term care coverage, we asked for applications appropriate for nursing home coverage.

a

Under federal law, states generally must withhold payments for long-term care services for persons 

who dispose of assets for less than fair market value within a specified time period to satisfy financial 

eligibility requirements. As a result, states generally conduct a review, or “look-back,” to determine 

whether the applicant (or his or her spouse, if married) transferred assets and, if so, whether the

transfer was made for less than fair market value. Generally, the look-back period is 36 months, but

for certain trusts the look-back period is 60 months.

b

The state’s application had a specific question about trusts that could be used to indicate whether

further review for a transfer of assets was necessary. 

c

While the state’s application did not include specific questions regarding transfer of assets, it

included a separate form for the applicant to report any transfers of assets, including the date of such

transfers. 

d

The state’s application asked about transfers within 30 months. Prior to the Omnibus Budget

Reconciliation Act of 1993, the federally mandated look-back period for transfers of assets was 30 

months.

e

The state’s application did not ask about transfers of assets.

f

The state had applicants complete their application during the interview process with eligibility case

workers.

g

The state’s application asked if an applicant had ever transferred assets.

Page 43 GAO-05-968 Medicaid and Asset Transfers
Appendix V: Comments from the Centers for Medicare & Medicaid Services

Appendix V: Comments from the Centers for 

Medicare & Medicaid Services 

Page 44 GAO-05-968 Medicaid and Asset Transfers
Appendix V: Comments from the Centers for Medicare & Medicaid Services

Page 45 GAO-05-968 Medicaid and Asset Transfers
A

Ac

ppendix VI: GAO Contact and Staff 

knowledgments

Page 46 GAO-05-968

Appendix VI: GAO Contact and Staff 

Acknowledgments 

GAO Contact Kathryn G. Allen (202) 512-7118 or allenk@gao.gov

In addition to the contact named above Carolyn Yocom, Assistant

Director; JoAnn Martinez-Shriver; Kaycee Misiewicz; Elizabeth T. 

Morrison; Michelle Rosenberg; Sara Sills; LaShonda Wilson; and Suzanne 

M. Worth made key contributions to this report.

Medicaid and Asset Transfers

Acknowledgments 

(290455)
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